You want to build your dream house or reorganize your house? A construction loan can provide you with the finances you need to get there, as well as improve the overall value of your property, but be sure to go with your eyes wide open.
What are construction loans?
A construction loan is used to finance the construction of a house on a vacant lot or to finance the addition and renovation of an existing house. With construction loans, it is important to keep in mind that a portion of the approved loan amount is retained by the bank and that the funds are advanced to the borrower in stages, through incremental payments made to the bank. during the construction period.
“The bank will only pay a down payment on the construction work already completed,” said Etrecia Sen Dik, sales director of the province of Ooba, the largest issuer of bonds in South Africa. “It is essential that you choose a financially stable contractor, as it must finance the purchase of construction materials and complete the construction works until the works have reached a stage where a progressive payment can be made by the bank.”
Am I eligible?
If you are building a new home from scratch or doing renovations, banks will look for many criteria when they lend to their clients. First, you must be at least 18 years old and have a clear credit record. Second, the funding must be used to build or modify a residential property. Being able to pay the monthly bail payment is also a prerequisite.
In addition, the contractor must be registered with the NHBRC (National Home Builder Registration Board) for all new dwellings. Owners must also have cash to finance the shortfall. As Sen Dik explains, “an initial deposit, which can account for 10% of the cost of the project, is often requested from the bank by the client to make up the shortfall.” This difference is the difference between the cost of the project and the cost of the project. the amount granted by the bank.
What documents do I need?
“Different documents are needed at different stages of the construction process,” explains Sen Dik. To apply for a construction loan from a bank, you will need draft drawings for your home, including plans, sections, elevations and a site plan. You will also need to show the signed construction contract, a schedule of minimum specifications and finishes, a schedule of completion dates and proof of the builder’s registration with the National Home Builder Registration Board. (NHBRC).
The owner of the house must also provide a waiver of the builder’s lien. “The waiver of the privilege is that the builder waives all rights to the property, the materials used in the construction of housing and the cost of labor to the bank,” adds Sen Dik.
What is a turnkey property?
“A turnkey property is a new home where the buyer takes the transfer of the property once it is completed,” says Sen Dik. With turnkey properties, the transfer of ownership and the registration of the bonds take place upon completion of the property and the full proceeds of the loan are paid as there is no retention. “Once the house is over, the bank conducts an inspection of the property to make sure it is complete before providing their attorneys with the consent to register the bond,” says Sen Dik.
What is the insurance cover for all risks of the manufacturer?
“It covers the builder, the bank and the borrower against any loss or damage that may occur during the construction period,” says Sen Dik. Police cover the damage caused by fires, lightning, explosions, earthquakes and storms, as well as the theft of building materials. If the builder has his own policy, the bank will require a copy of the full policy wording, as well as proof of coverage by romao.
Once the construction of the property is complete, the bank must ask the owner of the house, before authorizing the final payment, for proof that an appropriate building insurance policy is in place to ensure that the asset is insured for the replacement value determined by the bank..
Even though all construction works involve both disadvantages and disadvantages, Sen Dik believes that pain is really worth the gain when it comes to improving the value of the property. “If you want to realize the underlying value of your property by doing renovations or if you want to make this dream home a reality, a construction loan is definitely the answer,” she says. “Just make sure you choose a reputable and registered entrepreneur and have enough money to cover any shortfall,” she adds.